Report on the Implementation of the derogation to ... - Trade Websites

Final <strong>Report</strong>
RoO Derogation under the PACP-IEPA
efficiency levels (2-3 times less efficient than Thai, Filipino and Ecuadorian labour), high
absenteeism (20-30%) and high labour turnover (50-60%).
• Freight - PNG processors are subject to very expensive sea freight costs due to relatively low
freight volumes and a limited number of freight service providers in PNG.
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PNG - EU: US $2,800/20ft. container (dry)
Philippines - EU: US $1,200/20ft. container (dry)
Thailand - EU: US $ 1,300/20ft. container (dry)
Ecuador - EU: US $1,700-2,000/20 ft. container (dry)
Domestic freight rate between Wewak’s provincial port and Lae’s international port are
reportedly almost as expensive as the freight rate between Lae and Europe. There is also a
reported shortage of empty containers due to heavy competition from other export sectors.
• Utilities - Water and electricity are high cost and supply is unreliable. Processing plants are
forced to install back-up generators and fuel costs are high due to a monopolistic supply
arrangement between Inter-Oil and the PNG Government. In Wewak, unreliable power and
water supplies are the biggest constraints to production. PNG’s estimated utilities cost is
currently around US $0.80/case, which is markedly higher than the Philippines (US
$0.54/case).
• Infrastructure - The quality of key infrastructure is poor, particularly wharves and roads.
Wharf-related issues are one of the most serious disadvantages for Wewak and Lae-based
processing facilities.
• Oil, cans and other packaging materials - Steel plate for can-making, cartons, labels and
oil/condiments all need to be imported, whereas other major competing sites (e.g. Thailand,
Philippines) have established domestic supporting industries.
• General business environment – Processing operations (as well as other large-scale exportorientated
businesses) are hampered by PNG’s difficult business environment stemming
from factors including high levels of corruption, unstable legal frameworks, security issues,
customary land ownership issues, limited administrative capacity of government at both the
provincial and national levels, high inflation and strong currency.
PNG’s existing tuna processing operations have struggled since establishment to become profitable.
It is understood that losses incurred by the processing operations are generally offset by profits
made by the companies’ fishing operations (which is the case for most-PIC processing operations).
According to a senior-level PNG processing industry representative, “We’d be happy to breakeven.....a
plant processing 100 mt/day in PNG will not make money; processing needs to be at least
120mt/day to be remotely profitable and 150 mt/day if the plant is to turn a decent profit”.
Duty-free access to EU markets helps to relieve PNG’s competitive pressures, but is not a
competitive advantage per se – the 20.5-24% duty preference enjoyed by PNG in comparison to
Thailand and Philippines respectively, simply enables PNG processors to be able to supply this
market. PNG processing industry representatives indicated that profit margins for supplying the EU
are negligible – at best, maybe 2-3%. Unless economies of scale can be achieved and several other
constraints addressed, as PNG’s margin of preference erodes compared to Thailand and the
Philippines in the coming years (see Section 7.2), then PNG will no longer be able to supply the EU
market.
Linpico s.a.r.l. Page 40